Assurance of inter-company's loans

It can be prevalent for our audit client to give corporate assurance to a bank in favour of similar firms for the loan drawn down by the associated firms. Frequently, your audit client may perhaps assure timely repayment of interest and assure to repay amount due should really the associated firm default in repaying.

A bank may perhaps ask for assurance, if:

• the borrower will not be in financially sound position; or
• the loan sum is substantial for the borrower standpoint; or
• the borrower is looking to ask for any discount on its rate of interest

This assurance represents a prospective / contingent exposure to our audit customer. This must be disclosed inside the economic statement of our audit client. The disclosure should really, at a minimal, involve:

• the nature of your assurance;
• the sum assured; and
• contingent exposure as of balance sheet date (i.e. the quantity assured possibly US$100mil on a facility, though the outstanding loan quantity drawn down by associated firm is $80mil as of balance sheet time frame).

This disclosure aids to inform the financial statement user around the contingent libility the Firm has, and this may be an essential concern for a number of the fianancial statement

See Also: Can be banker's assure a contingent liability